QUESTION 1 (20 Marks)
Economists assume that the goal of a firm is to maximize profits. What are other goals that firms pursue?
QUESTION 2 (20 Marks)
From the Statistics Canada website (http://www. statscan.ca), find out how much profits contribute to Canadian GDP. What role do profits play in a free-market economy?
QUESTION 3 (20 Marks)
Assume that managers take two years off without pay to complete an MBA. Use the concepts of opportunity cost and net present value to answer the following:
a. How would you measure if an MBA is profitable?
b. What would happen to the number of managers applying to universities to do an MBA if wages of managers without MBAs increase 10 percent but wages of managers with MBAs do not change? Explain.
QUESTION 4 (20 Marks)
Given that the total cost function is:
TC = 100Q – Q2 + 1/3 Q3
where Q = rate of output and TC = total cost
a. Determine the marginal and average cost functions. (4 marks)
b. Calculate the output level that minimizes average cost. (8 marks)
c. Calculate the output level that minimizes marginal cost. (8 marks)
QUESTION 5 (20 Marks)
The demand for widgets (X) is given by:
Px = 160 – 4x
The production of widgets has the following average variable costs:
AVC = 2x – 20
Fixed costs are 162.
Calculate the output level of widgets that:
a. Maximizes total revenue.
b. Minimizes the average total cost (ATC) of widgets.
c. Minimizes the total cost (TC) of widgets.
d. Maximizes profits.
QUESTION 6 (20 Marks)
How does an increase in the price of widgets affect the:
a. Demand for widgets
b. Supply of widgets
c. Demand for woozles if widgets and woozles are substitutes
d. Demand for gadgets if widgets and gadgets are complements
QUESTION 7 (20 Marks)
Use the following supply and demand functions to answer the questions below:
Qd = 20-2P, Qs = 5+3P
a. Determine the equilibrium price and quantity and…